Mines and Minerals Amendment Bill 2026 curbs State taxing powers over mineral rights

Why in the News

Parliament passed the Mines and Minerals (Development and Regulation) Amendment Bill, 2026 on 13 August 2026, restricting the power of States to levy taxes on mineral rights and mineral bearing lands. The measure reverses in statute the fiscal gain that a nine judge Bench of the Supreme Court gave mineral rich States in 2024, and it has united ruling and opposition parties in Kerala, Odisha and Jharkhand against it.

What is the Mines and Minerals (Development and Regulation) Act, 1957?

1. About: The Mines and Minerals (Development and Regulation) Act, 1957 is the central law regulating the grant of mineral concessions and the development of mines in India.
2. The declaration it carries: Section 2 declares it expedient in the public interest that the Union take control of the regulation of mines and mineral development, which activates Entry 54 of the Union List.
3. Royalty setting: Section 9 empowers the Central Government to fix and revise royalty rates, and revision is permitted not more than once every three years.
4. Concession route: Since the 2015 amendment, mineral concessions are granted by States through competitive auction rather than by discretionary allotment.
5. Local sharing: Section 9B requires a District Mineral Foundation in every district affected by mining, funded by a contribution linked to royalty.

What is a royalty on minerals?

1. Definition: Royalty is the payment a lessee makes to the owner of the mineral for the privilege of extracting and removing it, calculated on the quantity or value produced.
2. Legal character: The Supreme Court has held royalty to be a contractual consideration flowing from the mining lease, not a tax levied by the state.

What is a cess?

1. Definition: A cess is a levy imposed for a specified purpose, with its proceeds earmarked for that purpose rather than merged into general revenue.
2. Why it matters here: Mineral bearing States had imposed cesses on royalty and on mineral bearing land, and it is this class of levy that the amendment restricts.

What is the District Mineral Foundation (DMF)?

1. Definition: The District Mineral Foundation is a non profit trust established in every mining affected district to work for the benefit of persons and areas affected by mining.
2. Funding: Lessees contribute a share of royalty to the Foundation, and the money is spent through the Pradhan Mantri Khanij Kshetra Kalyan Yojana on health, education, drinking water and livelihood in mining affected areas.

What is the current status of State taxing power over mineral rights in India?

1. Constitutional entry: Entry 50 of the State List gives States the power to tax mineral rights, expressly subject to any limitations imposed by Parliament by law relating to mineral development.
2. Judicial position since 2024: A nine judge Bench held that royalty is not a tax and that States retain legislative competence to tax mineral rights and mineral bearing land.
3. Retrospective effect: The Court permitted recovery of dues from 1 April 2005, to be paid in staggered instalments over twelve years beginning 1 April 2026, without interest or penalty for the earlier period.
4. State levies in force: Mineral rich States including Odisha, Jharkhand and West Bengal had enacted or revived levies on mineral rights in reliance on that ruling.
5. The new limitation: The 2026 amendment now exercises the limitation power in Entry 50 to restrict those levies and vests sole authority to frame rules in the Centre.
6. Central levies unaffected: Royalty under Section 9, the District Mineral Foundation contribution and the National Mineral Exploration Trust contribution of 2 per cent of royalty continue to be fixed centrally.

Constitutional Provisions Related to Mineral Rights and State Taxation

1. Article 246: Distributes legislative power between Parliament and State legislatures through the three lists of the Seventh Schedule.
2. Entry 54, Union List: Gives Parliament power over the regulation of mines and mineral development to the extent that such control is declared by law to be expedient in the public interest.
3. Entry 23, State List: Gives States power over the regulation of mines and mineral development, expressly subject to Entry 54 of the Union List.
4. Entry 18, State List: Places land, including rights in land and land tenures, within the exclusive competence of the States.
5. Entry 49, State List: Gives States the power to tax lands and buildings, which covers mineral bearing land as a class of land.
6. Entry 50, State List: Gives States the power to tax mineral rights, subject to limitations imposed by Parliament by law relating to mineral development.
7. Article 265: Provides that no tax shall be levied or collected except by authority of law.
8. Article 254: Governs repugnancy between a central and a State law on a concurrent subject, and gives the central law primacy.

What does the 2026 amendment actually change?

1. Restriction on State taxes: The Bill restricts the power of States to levy taxes on mineral rights and on mineral bearing lands.
2. Restriction on cesses: The restriction extends to cesses and other levies imposed on the same subject matter.
3. Rule making centralised: An amendment grants sole authority over the framing of rules to the Centre.
4. The Centre’s stated purpose: The government has argued that the amendment will promote mineral production, ensure mineral security and create a more uniform regulatory framework.
5. Passage: The Bill was cleared by the Rajya Sabha and passed by Parliament on 13 August 2026 amid Opposition protests.

How did the 2024 nine judge ruling set up this legislative response?

1. The question referred: Whether royalty under the 1957 Act is a tax, and whether States retain independent power to tax mineral rights and mineral bearing land.
2. The holding: By a majority of eight to one the Court held that royalty is not a tax, and that State competence under Entry 50 survives.
3. The precedent overruled: The 1990 ruling that had treated royalty as a tax, and had thereby denied States a separate taxing field, was overturned.
4. The fiscal consequence: Mineral rich States became entitled to arrears accumulated since 2005, an amount running into more than a lakh crore rupees across States.
5. The opening the Court left: The judgment expressly preserved Parliament’s power under Entry 50 to impose limitations on State taxation of mineral rights, and the 2026 amendment uses exactly that power.

Why do mineral rich States say the Bill strips their revenue base?

1. Encroachment on land: The Kerala Chief Minister described the legislation as a serious encroachment on the State’s constitutional powers over land and a grave threat to India’s federal structure, and said the State would mount political and, if necessary, legal opposition.
2. Land is a State subject: The Leader of the Opposition in Kerala argued that land falls under Entry 18 of the State List and that taxation of land is also a State subject, so the restriction enters the States’ constitutional domain.
3. Disproportionate impact: Odisha’s former Chief Minister wrote that the provisions would disproportionately impact mineral rich States and cause massive revenue losses that would stifle the State’s developmental agenda.
4. What the revenue funds: He stated that mining revenue finances healthcare, education, welfare schemes and infrastructure development across the State, and demanded a special Assembly session and a unanimous resolution.
5. Fiscal autonomy claim: He described fiscal autonomy as a constitutional principle built into the federal system, and said stripping States of the power to tax their own mineral bearing lands strikes at cooperative federalism.
6. Protest in Jharkhand: The Jharkhand Chief Minister called it a black Bill and warned of protests in every district, block, panchayat and town of the State.
7. The privatisation charge: The Kerala Opposition alleged that the larger objective was to weaken the public sector and create opportunities for corporates to earn windfall profits.

How was the Bill carried through Parliament?

1. Passage amid protest: The Bill was passed while the Opposition was protesting, and the concerns raised about federalism were not addressed on the floor.
2. Rights of affected people: The legislation overlooks the rights of those living on resource rich land, who are the first to bear the cost of expanded extraction.
3. A pattern, not an exception: The amendment follows an established pattern of hurried lawmaking and continuing expansion of central powers at the cost of States and local communities.
4. Session context: The monsoon session that began on 20 July 2026 passed several Bills with inadequate deliberation.
5. What deliberation would have required: An all party meeting, circulation of the draft and consultation with State Chief Ministers were available and were not used.

Can a Bill be constitutionally valid and still weaken federalism?

1. The text supports the Centre: Entry 50 has always made State taxation of mineral rights subject to limitations imposed by Parliament, so the amendment uses a power the Constitution itself confers.
2. The Court anticipated it: The 2024 judgment recognised that parliamentary limitation was available, so the amendment is a legislative answer within the space the ruling left open.
3. The effect side: A limitation that removes the entire field converts a qualified State power into no power at all, which is a different thing from regulating its exercise.
4. Who bears the loss: The States that lose most are the poorest resource States, whose own tax base is narrow and whose transfers do not compensate for mineral revenue.
5. The federal principle at stake: Fiscal autonomy is not merely a revenue question, because a State that cannot tax its own resource base cannot plan expenditure independently of central transfers.
6. The objection is not uniformly principled: The Kerala Opposition itself pointed out that the State government’s Revised Budget and White Paper on State finances proposed full privatisation of beach sand mining, which is the same direction it attacks in the Centre.

Major Debates Surrounding Mineral Taxation and Federalism

1. Royalty as tax or consideration: The 1990 ruling treated royalty as a tax, the 2004 five judge ruling read that as a drafting error, and the 2024 nine judge ruling settled it as a contractual consideration.
2. How far a limitation may go: Whether Parliament’s power to impose limitations under Entry 50 extends to extinguishing the State’s taxing field altogether remains contested.
3. Retrospective recovery burden: The staggered recovery of arrears from 2005 falls heavily on public sector miners and steel producers, and industry has argued it will be passed into input costs.
4. Uniformity against autonomy: The Centre’s case for a single national regulatory framework for mineral security runs directly against the States’ claim to price their own resource endowment.
5. Resource curse: Mineral rich States record among the highest poverty rates despite the highest extraction, which raises whether royalty and District Mineral Foundation flows compensate the host population at all.
6. Community consent: The rights of Scheduled Area residents under the Fifth Schedule and the 1996 Panchayats Extension to Scheduled Areas Act sit uneasily with a centralised concession regime, as the Samatha and Niyamgiri rulings demonstrated.
7. District Mineral Foundation utilisation: Large unspent balances and expenditure outside mining affected areas have raised the question whether local sharing works in practice.

Challenges to the Mineral Taxation Framework after the Amendment

1. Revenue substitution gap: No mechanism replaces the levies the States lose, e.g. Odisha’s mining revenue funds a large share of its own tax receipts and no equivalent central transfer has been announced.
2. Litigation risk: The amendment invites a fresh constitutional challenge, e.g. the Kerala Chief Minister has already said the State will consider legal opposition to the Act.
3. Investment uncertainty: Repeated changes to the fiscal regime deter long lead mining investment, e.g. bidders in mineral auctions price in future levy changes through lower premium bids.
4. Local community exclusion: Centralised rule making distances the decision from those displaced, e.g. Niyamgiri in Odisha showed that consent of gram sabhas can defeat a project cleared at higher levels.
5. Auction premium distortion: High auction premiums already compress operating margins, e.g. several iron ore blocks won at premiums above 100 per cent of sale value have remained unoperated.
6. Enforcement of illegal mining controls: Restricting State fiscal powers does not address extraction outside the legal framework, e.g. illegal sand and iron ore mining continues to be reported across multiple States despite the auction regime.
7. Environmental cost transfer: The framework does not price ecological damage into the concession, e.g. mining in the Aravallis and in central Indian forest belts has continued alongside contested clearances.

Conclusion

Entry 50 always made State taxation of mineral rights subject to limitation by Parliament, so the amendment uses a power the Constitution grants. Its effect is to reverse in statute the fiscal gain that a nine judge Bench gave mineral rich States in 2024. What remains unresolved is whether a formally valid limitation that removes an entire revenue base is compatible with fiscal federalism, and that question is now headed back to the courts.

What is Fiscal Federalism?

1. About: Fiscal federalism is the division of taxation powers, expenditure responsibilities and transfer mechanisms between the Union and the States in a federal system.
2. Rationale: Revenue raising capacity is concentrated at the centre while service delivery responsibility sits with the States, so a transfer system is required to close the gap.
3. Vertical fiscal imbalance: The mismatch between the Union’s revenue powers and the States’ expenditure responsibilities, corrected through tax devolution.
4. Horizontal fiscal imbalance: The mismatch between States of differing income and need, corrected through the Finance Commission’s inter se distribution formula.
5. Third tier imbalance: The mismatch at the level of panchayats and municipalities, whose own revenue is minimal and whose transfers depend on State Finance Commissions.

Key Concerns Regarding Fiscal Federalism

1. Shrinking divisible pool: Cesses and surcharges are not shared with States, so a growing share of central revenue sits outside the devolution formula.
2. Loss of taxation autonomy under GST: States surrendered most of their independent indirect taxing power, leaving mineral rights and land among the few residual fields.
3. Conditional transfers: Centrally sponsored schemes come with matching share and design conditions that constrain State expenditure choices.
4. Weak third tier finance: Local bodies remain dependent on State transfers because property tax and user charge collection is under exploited.
5. Borrowing limits: State borrowing under Article 293 requires central consent where the State is indebted to the Union, which constrains counter cyclical spending.

Constitutional Framework Governing Mineral Rights and State Taxation

1. Article 246: Distributes legislative competence between the Union and the States through the Seventh Schedule.
2. Seventh Schedule: Contains the Union List, the State List and the Concurrent List that operationalise Article 246.
3. Entry 54, Union List: Regulation of mines and mineral development to the extent declared by Parliament by law to be expedient in the public interest.
4. Entry 23, State List: Regulation of mines and mineral development, subject to Entry 54 of the Union List.
5. Entry 18, State List: Land, rights in land, land tenures and the relation of landlord and tenant.
6. Entry 49, State List: Taxes on lands and buildings.
7. Entry 50, State List: Taxes on mineral rights, subject to any limitations imposed by Parliament by law relating to mineral development.
8. Article 265: No tax shall be levied or collected except by authority of law.
9. The Mineral Area Development Authority line of cases: India Cement in 1990 treated royalty as a tax, Kesoram Industries in 2004 read that as a drafting error, and Mineral Area Development Authority in 2024 held by eight to one that royalty is not a tax and that Entry 50 competence survives.

Laws and Rules Governing Mining in India

1. Mines and Minerals (Development and Regulation) Act, 1957: The parent statute for mineral concessions; its Section 2 declaration is what brings mineral regulation under Union control.
2. MMDR Amendment Act, 2015: Introduced auction as the only route for granting mineral concessions and created the District Mineral Foundation and the National Mineral Exploration Trust.
3. MMDR Amendment Act, 2021: Removed the distinction between captive and merchant mines and allowed transfer of statutory clearances with the lease.
4. MMDR Amendment Act, 2023: Created the exploration licence and moved twelve critical and deep seated minerals, including lithium and beryllium, to central auction under a new Part D.
5. Mines Act, 1952: Governs worker safety, working hours and welfare in mines, enforced through the Directorate General of Mines Safety.
6. Offshore Areas Mineral (Development and Regulation) Act, 2002: Governs mineral rights in territorial waters and the exclusive economic zone, amended in 2023 to introduce auctions.
7. Mineral Conservation and Development Rules, 2017: Prescribe scientific mining, mine closure and conservation obligations for lessees.
8. Forest (Conservation) Act, 1980 and Forest Rights Act, 2006: Govern diversion of forest land and require settlement of individual and community forest rights before diversion.
9. Panchayats (Extension to Scheduled Areas) Act, 1996 (PESA): Requires consultation with the gram sabha before granting a mineral concession in a Scheduled Area.

Back2Basics: Mineral Area Development Authority v. Steel Authority of India (2024)

1. Bench strength: It was decided by a nine judge Constitution Bench of the Supreme Court, the largest bench to sit on the question.
2. Majority: The ruling was by a majority of eight to one.
3. Core holding: Royalty payable under Section 9 of the 1957 Act is a contractual consideration and not a tax.
4. Competence upheld: States retain legislative competence under Entry 50 of the State List to tax mineral rights, and under Entry 49 to tax mineral bearing land.
5. Precedent overruled: It overruled India Cement Limited v. State of Tamil Nadu (1990), which had treated royalty as a tax.
6. Limitation preserved: The Court recorded that Parliament may impose limitations on the Entry 50 power through a law relating to mineral development.
7. Prospectivity ruling: In a separate order the Court allowed recovery of dues from 1 April 2005 in instalments over twelve years starting 1 April 2026, and waived interest and penalty for the period before the judgment.

Government Initiatives for the Mineral Sector

1. National Mineral Policy, 2019: Sets the policy framework for sustainable mining, exploration expansion and a right of first refusal in auctions for existing lessees.
2. National Critical Mineral Mission: Launched to secure supply of critical minerals, targeting 1,200 domestic exploration projects by 2030 to 2031, production of 15 critical minerals and acquisition of 50 overseas assets.
3. Khanij Bidesh India Limited (KABIL): A joint venture of three public sector undertakings to acquire mineral assets abroad, including lithium acreage in Argentina.
4. Pradhan Mantri Khanij Kshetra Kalyan Yojana: Spends District Mineral Foundation funds on drinking water, health, education, sanitation and livelihoods in mining affected areas.
5. National Mineral Exploration Trust: Funded by a levy of 2 per cent of royalty, it finances regional and detailed exploration by notified agencies.
6. Mining Tenement System and Star Rating of Mines: Digitise concession records and grade operating mines on sustainable development performance.

Key Facts about India’s Mineral Sector

1. Production base: India produces 95 minerals, comprising fuel, metallic, non metallic, atomic and minor mineral categories.
2. Global standing: India is the world’s second largest producer of coal and among the largest producers of iron ore and crude steel.
3. Leading States: Odisha, Chhattisgarh, Jharkhand, Karnataka and Rajasthan account for the bulk of the value of mineral production.
4. Critical minerals list: India notified a list of 30 critical minerals in 2023, of which twelve were moved to central auction under the 2023 amendment.
5. Foundation contribution: Lessees contribute 10 per cent of royalty to the District Mineral Foundation for auctioned leases and 30 per cent for older leases.
6. Sector share: Mining and quarrying contribute roughly 2 to 3 per cent of gross value added, well below the share in comparable resource economies.

Challenges in India’s Mining Sector

1. Exploration deficit: Only a small fraction of the obvious geological potential area has been explored in detail, e.g. India still imports the bulk of its lithium, cobalt and rare earth requirement despite favourable geology.
2. Land and forest clearance delays: Concession holders wait years for statutory clearances, e.g. blocks auctioned in central India have remained unoperated pending forest diversion approval.
3. Displacement and rehabilitation: Mining displaces tribal populations without durable resettlement, e.g. the Niyamgiri hills case turned on the Dongria Kondh community’s rights over the proposed bauxite site.
4. Illegal mining: Extraction outside the legal framework persists in high value and low value minerals alike, e.g. river sand mining continues to be reported across States despite auction and monitoring rules.
5. Environmental damage: Overburden, dust and water table impact are inadequately priced, e.g. coal mining in the Singrauli belt has produced sustained air and water contamination.
6. Occupational safety: Accident rates in mines remain high, e.g. rat hole coal mining in Meghalaya has caused repeated fatal flooding incidents despite prohibition.
7. Value addition gap: India exports ore and imports processed metal, e.g. iron ore fines have historically been exported while high grade steel inputs are imported.

Way Forward

1. Compensate the fiscal loss: Route a defined share of central mineral levies back to producing States to replace the revenue the amendment removes.
2. Legislate the limitation narrowly: Define the scope of the Entry 50 limitation in the statute so that the residual State field is stated rather than left to litigation.
3. Institutionalise consultation: Refer contested federal legislation to a Joint Parliamentary Committee and consult State Chief Ministers before introduction.
4. Strengthen local sharing: Audit District Mineral Foundation spending and restrict it to a defined radius around mining affected habitations.
5. Expand exploration: Use the exploration licence route to bring private and junior exploration capital into deep seated and critical mineral search.
6. Build processing capacity: Support domestic refining and separation of critical minerals so that concession reform translates into value addition rather than ore export.

Matching Previous Year Question

“[2025, GS2, 15 marks] Examine the evolving pattern of Centre-State financial relations in the context of planned development in India. How far have the recent reforms impacted the fiscal federalism in India?”